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Brokers' take: UBS initiates coverage on Cromwell European Reit with 'buy'; Goldman 'neutral'

ANALYSTS from UBS Global Research and Goldman Sachs have initiated coverage on Cromwell European Reit (CEReit), albeit with different ratings.

The Swiss bank initiated coverage with a "buy" rating, citing the Reit's growth profile as under-appreciated despite favourable operating dynamics and rising inflation.

UBS has indicated a 12-month target price of 0.62 euros, while Goldman Sachs has initiated coverage with a neutral rating with a 12-month target price of 0.58 euros.

That being said, both brokers highlighted that distribution per unit (DPU) is set to grow due to CEReit's inflation-linked lease structure, which differentiates itself from other Singapore Reits (real estate investment trusts). The brokers also cited the Reit's improving portfolio occupancy rate as an upside.

UBS said that CEReit is well positioned to benefit from growing demand on the back of improving labour conditions and also from firms looking to relocate from Britain; furthermore rents are accelerating and supply in the market is tight.

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The broker added that the light industrial/logistics assets in CEReit's portfolio are set to continue to grow due to increased manufacturing output and trade across Europe.

"We forecast a DPU compound annual growth rate of 2.3 per cent in 2017-19, underpinned by organic growth from inflation, occupancies and favourable market fundamentals in Europe," UBS said in a research note.

Goldman said that while CEReit properties' have among the longest weighted average lease expiry of 4.9 years, its portfolio lacks specialisation and scale, which may drive up operating costs in future.

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